This document is available in two
formats: this web page (for browsing content) and PDF (comparable to original document formatting). To view the PDF you will need Acrobat Reader, which may be downloaded from the
Adobe site. For an official signed copy, please contact the
Antitrust Documents Group.

The National Council of Farmer Cooperatives is pleased to submit the attached
comments in response to the request for comments on "Agriculture and Antitrust
Enforcement Issues in Our 21st Century Economy," 74 FR 43725 (08/27/2009).

Marlis Carson
General Counsel
Vice President, Legal, Tax and Accounting
National Council of Farmer Cooperatives
202-879-0825

CONFIDENTIALITY NOTICE:
This e-mail transmission may contain confidential information. This information is solely for the use of the individual(s) or entity to whom or which it was intended. If not an intended recipient, any review, copying, printing, disclosure, distribution or any other use is strictly prohibited. If you have received this email in error, please immediately notify the sender by reply e-mail. Please delete this e-mail from your files if you are not the intended recipient. Thank you.

The National Council of Farmer Cooperatives (NCFC) is pleased to submit the attached
comments in response to the request for comments on agriculture and antitrust enforcement
issues.

NCFC is the national trade association representing America's farmer cooperatives. There are
over three thousand farmer cooperatives across the United States, whose members include a
majority of our nation's two million farmers.

We appreciate the opportunity to comment on this important topic and would be happy to
provide witnesses for the upcoming workshops and to answer any questions you may have
regarding the nature and role of farmer cooperatives in American agriculture.

Please direct your questions to Marlis Carson, General Counsel and Vice President, Legal, Tax
and Accounting, at 202-879-0825 or mcarson@ncfc.org.

American agriculture is a modern-day success story, providing abundant and safe food to
American consumers at the lowest prices in the world.

Farmer cooperatives are an important part of the success of the nation's food and
agricultural supply system. Farmer cooperatives handle, process and market almost
every type of agricultural commodity, furnish farm supplies, and provide credit and
related financial services, including export financing, to their farmer members.

The limited antitrust immunity provided by the Capper-Volstead Act and other federal
statutes enables farmers to join together to collectively process and market their products
through farmer cooperatives, and thereby helps to level the playing field for farmers in an
environment characterized by increasing concentration at the food wholesale and retail
levels.

Buyer power in the agricultural marketplace is as strong or stronger than it was in 1922,
when the Capper-Volstead Act was enacted - the Capper-Volstead Act's protections are
as critical today as they were nearly 100 years ago.

Any action to eliminate or dilute the Capper-Volstead Act or other similar federal statutes
would harm the success and effectiveness of farmer cooperatives, damage American
agriculture and competition in the agricultural marketplace, and harm rural communities.

Farmer cooperatives increase competition; provide a guaranteed home for their members'
products; lower farmers' production costs; and increase farmers' incomes.

The activities and earnings of farmer cooperatives are vital to the economies of the rural
communities they serve.

While cooperatives may help farmers countervail the market power of buyers and
processors, cooperatives are subject to numerous practical constraints that prevent them
from achieving monopoly power.

Introduction

American agriculture is a modern-day success story. American farmers produce the world's
safest, most abundant food supply for consumers at prices that are the envy of the world.
Innovative planting, fertilizing, harvesting, storage, and processing are the hallmarks of
American agriculture and ensure a safe and affordable food supply for the nation's citizens.

According to the Department of Agriculture, United States households spend an average of 5.7
percent of household final consumption expenditures on food, the lowest percentage in the
world. (1) A 2009 study by the United States Government Accountability Office determined that,
while per capita food expenditures have increased since 1982, households now spend a smaller
percentage of disposable income on food than they did more than 25 years ago. (2)

Farmer cooperatives -- businesses owned and controlled by farmers, ranchers, and growers -- are
an important part of the success of American agriculture. Cooperatives differ from other
businesses because they are member-owned and are operated for the mutual benefit of their
members. Cooperative earnings are distributed on the basis of the quantity or value of business
the cooperative conducts with the member, also known as "patronage." There are over 3,000
farmer cooperatives across the U.S., whose members include a majority of our nation's two
million farmers.

Farmer cooperatives handle, process and market almost every type of agricultural commodity,
furnish farm supplies, and provide credit and related financial services, including export
financing, to their farmer members. Earnings from these activities are returned to their farmer
members on a patronage basis, helping improve their income from the marketplace. In addition,
farmer cooperatives are a vital part of the rural communities they serve, providing nearly
200,000 jobs in the United States, with net business volume of $165.3 billion, (3) and contribute
significantly to the economic well-being of rural America.

Farmer cooperatives enhance competition in the agricultural marketplace by acting as bargaining
agents for their members' products; providing market intelligence and pricing information;
providing competitively priced farming supplies; and vertically integrating their members'
production and processing.

For farmer cooperatives that market their members' products, the Capper-Volstead Act provides limited antitrust immunity that allows them to continue to operate effectively. Without this
immunity, marketing cooperatives would not be able to function in today's challenging
marketplace, which is characterized by relatively few, large buyers of agricultural products. The
Act's limited immunity does not cover (among other things) illegal conspiracies or combinations
with non-cooperative entities, or so-called "predatory" conduct of any kind.

Since 1929 the National Council of Farmer Cooperatives (NCFC) has represented the business
and policy interests of America's farmer cooperatives. As you explore the impact of market
concentration in agriculture, NCFC asks that you recognize the unique and important role that
farmer cooperatives play in the success of American agriculture and in providing farmers the
best opportunity to compete in an increasingly challenging marketplace. We also ask that you
recognize the importance both for farmers and consumers of preserving the Capper-Volstead
Act's protections for cooperatives.

I. Overview of Capper-Volstead Act and Other Federal Statutes

Acting independently, individual farmers are too small and too numerous to deal effectively with
larger agribusinesses in the supply, processing, and marketing sectors of agriculture.
Consequently, in the late 19th and early 20th centuries, farmers joined forces to form cooperative
associations to market their products and purchase farm-related supplies and services.

Contrary to the likely intentions of Congress, early court decisions held that these associations
fell within the broad reach of the Sherman Act of 1890, which made "[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . .
. illegal." (4) To address this problem, Congress later enacted Section 6 of the Clayton Act, which
exempted agricultural organizations from antitrust laws if they were established for mutual help,
did not have capital stock, and were not operated on a for-profit basis. (5)

The language of Section 6 of the Clayton Act made it clear that forming a cooperative was not a
violation of the Sherman Act, but Section 6 did not clearly specify the types of activities in
which a cooperative could engage, nor did it apply to cooperatives organized on a stock basis.
The shortcomings of the Clayton Act led to the passage of the Capper-Volstead Act in 1922. (6) The Supreme Court has noted: "From the standpoint of agricultural cooperatives, the principal
defect in that exemption [Clayton Act Section 6] was that it applied only to non-stock
organizations. The Capper-Volstead Act was intended to clarify the immunity for agricultural
organizations and to extend it to cooperatives having capital stock." (7)

The Capper-Volstead Act gives agricultural producer organizations limited antitrust immunity
"in collectively processing, preparing for market, handling, and marketing" their products and
permits such organizations to have "marketing agencies in common." (8) The Capper-Volstead
Act also gives the Secretary of Agriculture authority to prevent cooperatives from using their
market power to unduly enhance the price of the products they market. (9)

Without limited antitrust immunity for cooperatives, family farmers would find it virtually
impossible to compete in a business economy in which farmers lack bargaining power in dealing
with relatively few, large buyers, and would lack the ability to integrate into agricultural
processing to compete with those entities. In addition, limited antitrust immunity promotes
efficient integration in farming production and allows farming operations to survive in the
market. As the Supreme Court has stated: "By allowing farmers to join together in cooperatives,
Congress hoped to bolster their market strength and to improve their ability to weather adverse
economic periods and to deal with processors and distributors." (10)

The limited antitrust immunity for agricultural cooperatives provided by the Capper-Volstead Act
and other federal statutes is essential to the economic well-being of American farmers because
it enables farmers to more efficiently market their agricultural products and integrate into
agricultural processing. This limited immunity introduces more competitors into agricultural
processing than would exist absent the immunity. It also permits local cooperatives to obtain
the benefits of specialization by permitting them to join together in a federated cooperative that
may carry out specialized functions not performed by the local cooperative. These functions
include manufacturing production supplies, exporting, and large-scale advertising, activities that
may be too complex and expensive to perform at the local cooperative or individual farmer level.

Congress also has declared its support for agricultural production and cooperatives through the
Agricultural Marketing Act of 1929. In that Act, Congress declared the policy of Congress to
be:

[T]o promote the effective merchandising of agricultural commodities in interstate and
foreign commerce so that the industry of agriculture will be placed on a basis of
economic equality with other industries, and to that end to protect, control, and stabilize
the currents of interstate and foreign commerce in the marketing of agricultural
commodities and their food products . . . by encouraging the organization of producers
into effective associations or corporations under their own control for greater unity of
effort in marketing and by promoting the establishment and financing of a farm
marketing system of producer-owned and producer-controlled cooperative associations
and other agencies. (11)

Congress further supports associations of agricultural producers through the Agricultural
Marketing Agreement Act of 1937, (12) which grants the Secretary of Agriculture authority to enter
into marketing agreements with associations of producers and to thereby help stabilize market
conditions and assure consumers of adequate supplies of commodities. Marketing orders for
dairy, poultry, fruits, vegetables, and livestock are currently in place. The terms of orders are
developed through public hearings held by the Department of Agriculture, providing an
opportunity for the public and other government agencies to comment prior to issuance. A
recent study determined that orders do not prevent entry into the industry and "do not allow
producers to set prices directly or even to set limits on pricing such as price floors." (13)

The Agricultural Fair Practices Act of 1967 further illustrates Congressional support for
associations of producers. The Act states that "the marketing and bargaining position of
individual farmers will be adversely affected unless they are free to join together voluntarily in
cooperative organization . . ." and prohibits discrimination against a farmer because of
membership in a cooperative. (14)

Farmer cooperatives are an essential component of American agriculture, providing their farmer-members an alternative for marketing products and procuring goods and services. They also
offer a method for farmers to store raw and finished products in order to increase market
favorability, bargain collectively over prices, and share in profits from the processing and
marketing of products.

Farmer cooperatives by their very nature enhance competition in farm products and farm supply
markets. They are neither formed nor operated to provide a return on investor capital. Instead,
their purpose is to provide valuable products or services to their patrons at a competitive cost.
Joint action among farmers originated as a defensive mechanism to combat exploitation and
abuse from buyers and has expanded to include entry into agricultural processing, thereby
increasing competition. Trends in farming - increased farm size, mechanization, and improved
managerial and operational skills of farmers - have not changed the basic market structure of
farmers, that of individual producers with relatively little bargaining power.

The bargaining power achieved by farmer cooperatives helps to offset a number of unique and
challenging conditions experienced by farmers:

Thousands of small-scale farm firms sell to and buy from only a few large-scale non-farm firms, resulting in inequality in bargaining power;

Farmers must make production decisions long before demand for the product is
known;

Once production decisions are made, they cannot be easily or quickly changed
because of the long transition times between planting and harvest;

Weather, disease, insects, and other conditions may impact farming plans;

Due to the perishable nature of most farming products, farmers have few
opportunities to delay selling and must sell at a time when many farmers in the region
are bringing their product to market; and

Capital investments cannot be easily transferred to alternative production choices.

The Supreme Court has recognized the inherent and unique difficulties faced by farmers. In a
1929 opinion, Justice Sutherland, acknowledging the special treatment of cooperatives, wrote:
"It is settled that to provide specifically for peculiar needs of farmers or producers is a
reasonable basis of classification." (15) And in a case reviewing the constitutionality of a Texas
antitrust law, Justice Frankfurter acknowledged that:

[f]armers were widely scattered and inured to habits of individualism; their economic
fate was in large measure dependent upon contingencies beyond their control. In these
circumstances, legislators may well have thought combinations of farmers and stockmen
presented no threat to the community, or, at least, the threat was of a different order from
that arising through combinations of industrialists and middlemen. (16)

In finding that Kentucky cooperative marketing statutes promoted the common interest, Justice
McReynolds cited the lower court's finding that the statutes were enacted because producers
were "at the mercy of speculators and others who fixed the price of the selling producer and ...
the final consumer through combinations and other arrangements, whether valid or invalid, and
that by reason thereof the [producer] obtained a grossly inadequate price for his products." (17)

The processors, distributors, manufacturers, and other buyers to whom farmers sell their products today have grown increasingly concentrated and integrated. The USDA has described
the squeeze this concentration has put on farmers and their cooperatives:

Consolidation of firms at the processing, wholesale, and retail
levels of the U.S. food marketing system continues unabated.
Market influence and bargaining strength of even the largest
cooperatives are limited as a consequence. Food retailers flex their
market muscle by imposing coordination mechanisms that demand
strict discipline and conformity from suppliers. Food processors
exert greater control over distribution channels by integrating back
into the production of raw materials through a variety of ownership
and contractual arrangements. Such arrangements rob producers
of decision-making authority and market choices. (18)

Indeed, one major, concentrated segment of farmers' buyer base has developed in recent decades
-- the national or regional grocery store chain. To a large and increasing extent, the grocery
industry is concentrated into large chains, such as Walmart and Costco, that exert enormous
buying power. Industry estimates by Supermarket News indicate that the top ten grocery
retailers and wholesalers account for more than two-thirds of U.S. grocery sales. (19)

The USDA has taken note of this trend:

Consolidation among U.S. retail food marketers is continuous. It is augmented by
the entry of foreign firms into the U.S. market through aggressive acquisition
strategies . . . Retailers are positioned to dictate product requirements, prices, and
other terms of trade to suppliers. Purchasing is centralized for logistical and
pecuniary advantage as retailers seek to purchase as many products as possible
from the fewest number of suppliers. Moreover, suppliers must be substantial
enough to carry not only a nationwide presence, but also global networks of
stores. As traditional supermarkets expand in size and scope, volume discounters
and warehouse clubs are entering food retailing and becoming dominant market
participants. (20)

Moreover, cooperatives face large-scale concentration and integration not only on the part of the
businesses that buy farmers' products, but even among their direct competition at the producer
level. Investor-owned firms are increasingly integrating vertically, operating at the levels of
initial production, processing and marketing, and distribution and retailing. The USDA study
concludes:

As part of their response to the growth of consumer power, food
processors and retailers are extending their influence over
associated market channel activities. Firms that control key
elements of the distribution and marketing system are attempting
to control each level of the process, up to and including delivery to
the consumer . . . Competition gives way to coordination, as large
consolidated firms internalize transactions through ownership or
other coordination mechanisms that give them greater control of
variables affecting profitability. It also results in thinner markets
where the disparity in bargaining power among the parties
becomes even more pronounced. (21)

Cooperatives enable farmers to reduce the risks associated with price and income volatility. A
Giannini Foundation study notes:

Everyone knows farming is a risky business. Prices fluctuate from year to
year, and production levels can be similarly volatile. These factors often
combine to make farm income very unstable. ... Thus, if marketing
through a cooperative can reduce this risk, we have an additional benefit
of integration through a marketing cooperative. (22)

Cooperatives also help farmers to reduce risk through diversification. A USDA report on dairy
cooperatives explains:

...[C]ooperatives have adapted to the situation and hedged the price risks
by diversifying into multi-product and multi-plant operations, expediting
inventory turnover, integrating and diversifying into consumer-product
and niche markets, forming marketing agencies in common to share
market information or coordinate dairy product marketing, and entering
joint ventures with other firms to shift away some of the risks. (23)

Farmer cooperatives are the primary instrument to raise farm income and to improve farmers'
well-being by correcting or alleviating such market or competitive weaknesses. It is the
structural imbalance referred to above that originally spurred the formation of farmer
cooperatives. Without the freedom to act in association with other producers, the farmer has
almost no bargaining power and is at a competitive disadvantage.

Cooperatives play a vital role in reducing price fluctuations and other uncertainties by pooling,
collecting, analyzing, and disseminating information on market conditions. For example, the
California Citrus Growers Association establishes quality standards and shares information, and
the Wine Service Cooperative "provides storage and shipping services, as well as inventory
control and government reporting services. Similar cooperative ventures focused on services
such as cotton ginning, prune drying, citrus packing and storage, are continuing to provide
California producers with economies of scale." (24) By pooling information from farmers and
from other levels of the supply and product chain, cooperatives can assist farmers in predicting
future input and product prices. Cooperatives also can provide an assured market for member
farmers' products when the cooperative stores and/or processes those products.

Cooperatives also reduce fluctuations in members' incomes by diversifying into new product
and geographic markets in order to mitigate fluctuations in supply and demand. For example,
Sunkist Growers, Inc. markets its products extensively abroad. Rather than selling only products
of its members, Sunkist has purchased citrus from other countries in order to be a year-round
supplier of a full line of citrus products. (25)

Another example of diversification exists in the fresh berry market, where cooperatives Naturipe
and MBG/Michigan Blueberry Growers Association have joined a privately held company in
Chile to ensure a year-round supply of fresh berries under the Naturipe brand. The arrangement
gives the two cooperatives' members a more secure and broader customer base. (26)

By pooling the resources of their farmer-members, cooperatives also promote innovation and the
creation of new products and packaging. Such innovation allows farmers to compete against
major food and beverage manufacturers and to benefit from patronage generated by new revenue
streams.

Cooperatives serve another important function in allowing farmers to band together when
dealing with large suppliers in oligopolistic markets for agricultural products. (27) Michael Cook,
agricultural economics professor at the University of Missouri, notes that individual farmers
acting alone may be the victims of market holdup and opportunism on the part of larger suppliers
and buyers, but supply cooperatives allow farmers to work together "...to avoid monopoly
power." (28)

Supply cooperatives can realize substantial savings in input procurement through volume
discounts for consolidated purchases. Supply cooperatives provide more dependable supplies of
high-quality input materials (crop protectants, feed, fertilizer, petroleum, seed, and other
supplies) than would otherwise be available to their member farmers:

Farmers [who belong to coops], especially those producing fruits and
vegetables, have realized substantial savings in buying containers and
packaging supplies. Savings of up to 10 percent of sales have been
realized from volume discounts, brokerage allowances, or negotiated
prices from consolidated purchases. (29), (30)

USDA researchers have found that the activity of cooperatives in supply markets increases the
competitiveness of prices in these markets to the benefit of all, not just their members:

Cooperatives inject competition into the system by providing services at cost to
members. This leads to pricing adjustments by other organizations; thus the real benefit
may be their day-to-day impact on market prices. Based on the competitive influence of
cooperatives since they began operations, many leaders report that these economic
benefits greatly exceeded the annual net margins of the cooperatives. (31)

Researches find similar outcomes in the "yardstick of competition theory," which assumes that
farmers compare the prices charged by cooperatives for farm inputs and the prices paid by
cooperatives for farm products to the prices offered by investor-owned firms. This analysis
indicates that cooperatives may constrain the prices offered by investor-owned firms. (32) One
economic model predicts that cooperatives involved in processing have lower processor-farmer
price spreads than rival processors. The model suggests that open membership cooperatives are
pro-competitive forces whose presence mitigates for-profit firms' opportunities to exercise
monopoly or monopsony power. (33)

In some cases, cooperatives vertically integrate into production of farm inputs or the processing,
and sale of food products. Such vertical integration allows cooperative members to eliminate the
margin between the revenues and costs of an investor-owned processor and avoid transaction
costs that arise when vertically related enterprises have different owners.

In addition to reducing production and processing costs, cooperatives may reduce marketing
costs for their members. A USDA report notes that by pooling "sales, and handling and selling
expenses, cooperatives can operate more efficiently--at lower costs per unit--than farmers can
individually." (34) Accordingly, dairy cooperatives sometimes form marketing agencies to jointly
market their milk, to achieve efficiencies, and to spread risk:

In 1995, three dairy cooperatives in California joined forces to create
Dairy America, Inc., a marketing agency in common to market the
powdered milk they manufactured. Besides taking advantage of scale
economies in sales operations, the common agency can better coordinate
marketing of the product and spread market risks over a very large
volume. (35)

Cooperatives also assist farmers with branding and advertising, activities that are extremely
difficult and expensive for individual farmers. Sunkist Growers, Inc. notes:

A cooperative of growers together can do many things that a grower alone cannot afford
to do--develop a worldwide market, promote a brand name, access a global
transportation system, develop comprehensive research capabilities, and gain
governmental access to overseas markets--to name a few. (36)

Cooperatives may obtain better information about prevailing market conditions than farmers
could obtain individually. Dairy cooperatives have formed marketing agencies in common as
permitted under the Capper-Volstead Act. These marketing agencies provide a way for dairy
cooperatives and their members to share market information on inventory levels and product
movements of nonfat dry milk and whey powder. "This valuable information enables the
cooperatives to make informed decisions on inventory management and marketing operations," (37) USDA experts note.

Bargaining cooperatives also play an important role in reducing the costs of transactions between
farmers and processors to which the farmers sell their products. Bargaining cooperatives are
active primarily in wholesale markets for agricultural products for which, prior to the growing
season, a farmer and a processor enter into a contract setting the terms at which the farmer will
supply its product to the processor and the processor will pay for that product. Such contractual
relationships between farmers and processors are important for raw farm products for which
storage and transportation are expensive or impossible.

Acting independently, producers of highly perishable or hard to transport products lack a
competitive edge because there are few potential processors for any given farm's output of raw
farm products. Also, farmers and agricultural cooperatives have much less bargaining power in
dealing with processors once the farmers have invested in production, and particularly once the
crop has been harvested. As a result, farmers have a strong preference for contracting prior to
the growing season. For these products there are typically benefits to both farmers and
processors from coordinating to produce output to the processors' specifications, in the
quantities desired by the processors, and, insofar as possible, with the delivery dates desired by
the processors.

Researchers at the University of Wisconsin Center for Cooperatives recently studied the
negotiations between bargaining cooperatives representing growers of products such as fruits
and vegetables and the processors that purchase their products in advance under contracts:

Bargaining can offer benefits to all parties when it results in enhanced
price discovery (or "information sharing"). This is most likely to be
important in markets where contracts are the primary farm-to-market
coordination device. Without a substantial 'spot market' of some kind,
there is limited opportunity for information transmission across the
various market participants regarding uncertain supply and demand
conditions, and a bargaining association can help overcome this
problem. (38)

Cooperatives also can reduce risk through adjustment of production or sales as demand changes. "If the cooperative controls a significant share of the relevant market and the commodity is
storeable, it can reduce price fluctuations by maintaining buffer stocksof the raw commodity." (39) Cooperatives may be able to coordinate production among farmers so as to reduce variability in
production and thus prices. (40)

These various activities by farmer cooperatives help to achieve lower food prices. USDA
researchers have concluded: "Lowered production costs on the farm and marketing efficiencies
brought about by cooperatives help hold down food costs to consumers." (41)

One research study has found that where cooperatives sell products in retail markets in which
brands sold by investor-owned firms have large market shares, the addition of the cooperative's
product may lead to a reduction in the prices of competitors. The study concluded that "the
prices of all brands in a market are affected by the presence of a co-op brand. Brands in markets
with at least one co-op are 6 cents cheaper than a similarly positioned brand where no co-ops
compete." (42)

While farmer cooperatives are able to reduce costs and thus reduce food prices, they
also are able to increase incomes for farmers. A 2004 study indicated that when a farmer
is a member of a supply cooperative, the farmer's annual income is $5,678 higher on
average. (43)In fact, cooperatives increase farmer income in several ways, including raising
the price paid to farmers for their products or lowering the level for supplies purchased;
reducing per-unit handling or processing costs through economies of size or scale;
distributing to the farmer-members the net savings made in handling, processing, and
selling operations; and developing new markets for products. (44)

In addition, evidence shows that cooperatives may offer better investments for their
members than some available alternatives. A USDA report measured the "extra value"
of a cooperative by comparing its rate of equity return to a benchmark rate of return used
by banks as a minimum threshold to make a loan. Over 30 percent of cooperatives beat
the benchmark rate of return by over 5 percent in 1992-1996 and 27 percent exceeded the
benchmark rate by over 5 percent in 2000-2004. More than 16 percent exceeded the
benchmark rate by over 10 percent in those two time periods. (45)

III. Farmer Cooperatives Do Not Diminish Competition

While cooperatives may help farmers countervail the market power of buyers and processors,
they are unlikely to achieve monopoly power.

As user-owned entities with a limited number of owner-investors, farmer cooperatives are
subject to inherent practical constraints. Cooperatives typically do not seek capital from outside
investors and their ability to raise additional capital from their producer members is limited, due
to what one cooperative expert has identified as the "portfolio and horizon problems":

The portfolio problem arises because producer-members are required to invest capital in
an industry in which they already have significant investment in production capacity.
The horizon problem occurs because, traditionally, cooperatives' residual earnings are
contractually tied to their producer-members' current transactions, rather than to their
investment. Since members are unable to recognize appreciation in their equity
investment, they exert pressure on their cooperative to maximize current returns rather
than investing for higher future returns. (46)

Such practical limitations on access to capital are a major hindrance to the activities of most
cooperatives and make it difficult for such cooperatives to expand and approach significant
market power, especially when operating and expansion expenses are increasing for such things
as environmental compliance, expanding globalization, and corporate governance and
accountability.

Further, the requirements for the favorable tax treatment of distributions of earnings by
agricultural cooperatives to their members under Subchapter T of the Internal Revenue Code (47) impose significant practical limitations on the activities of cooperatives. In order to distribute
earnings as patronage distributions under the provisions of Subchapter T, such earnings must be
from activities with or on behalf of the members and must be related to the agricultural activities
of the members. These restrictions mean that agricultural cooperatives cannot expand or move
away from a close connection with such agricultural activities without losing the benefits of
Subchapter T.

In addition, the distribution of cooperative earnings to producer members may cause producers
to view the distribution as a signal to produce more product. Increased production then forces
the cooperative to expand output, thereby reducing prices. In contrast, corporations simply
distribute dividends to shareholders who are not input suppliers to the enterprise and the
dividend distribution does not encourage additional production. Numerous industrial
organization economists have pointed out that, because of this feedback mechanism,
cooperatives have a self-correcting supply enhancement in profitable times that makes it unlikely
for cooperatives to achieve market power. (48)

Cooperatives also are unlikely to achieve market power because members can leave to compete
against the cooperative, to form another competing cooperative, or to become a supplier to a
proprietary firm - and, of course, farmers who were never members of the cooperative can do all
of this, too.

Because of these inherent constraints and practical limitations, there is no need to eliminate or
dilute the Capper-Volstead limited antitrust immunity. Such action could unintentionally result
in purchases of the processing assets of marketing cooperatives by proprietary firms or the
introduction of non-farmer stockholders into restructured agricultural enterprises. In addition, if
cooperatives could not freely federate with other cooperatives to perform processing or
marketing functions, they would be left with the stark choice of dealing only with proprietary
firms. This would lead to the further consolidation of processing assets, as large proprietary
firms would purchase the assets of cooperatives that could no longer compete efficiently.

Further, while other of the activities engaged in by agricultural cooperatives may be allowable
under antitrust laws, the Capper-Volstead limited immunity provides a significant benefit to
farmers. Without Capper-Volstead, marketing cooperatives would have to incur the substantial
costs of proving that their activities do not violate antitrust laws in "rule of reason" proceedings,
which often involve tremendous legal expense. The threat and actuality of such additional costs
could be used by larger competitors to harass cooperatives with limited resources. In addition,
loss of a bright-line Capper-Volstead immunity will result in additional lawsuits by plaintiffs'
law firms seeking treble damages under federal antitrust law. Removal of the limited immunity
would result in a reduction in the number of competitors in the agricultural marketplace and
reduced investment in agriculture.

IV. Farmer Cooperatives Enhance Rural Communities

In addition to improving competition and increasing farmers' income levels, farmer cooperatives
also provide essential economic and social benefits to rural communities. Cooperatives generate
income, provide employment, and provide tax revenues across the United States. According to a
USDA report:

Most of the additional income farmers get through cooperatives is spent
with hometown firms for goods and services. Successful cooperatives
also have substantial payrolls and their employees' patronage of local
businesses adds to the economic well-being of the community. The
cooperatives also spend money for supplies, utilities, insurance, and local
taxes. (49)

Cooperatives also provide a sense of community and are essential in helping rural communities
remain viable:

In small towns, the cooperative often is the major or only business.
Without it, people would have to go elsewhere for goods and services. A
majority of the farmer cooperative plants and other facilities are located in
rural areas--a plus value in stimulating home ownership and retaining
rural industry. Participation in cooperatives often encourages
participation in other community projects and in State and local
government. (50)

A 2002 study collected survey data from 189 agricultural cooperatives in Minnesota reporting
$5.4 billion in revenues. (51) The researcher estimated that "[t]hese 189 cooperatives generate $8.4
billion in economic impacts" through "direct effects attributable to the firm, those [effects]
resulting from purchases made by the firm, and the induced effects as a result of local spending
by firms attributable to the demand change resulting from a firm's actions." (52) The study's "best
estimate of the total economic impact of agricultural cooperatives in the State [of Minnesota]
using the USDA data is $17.2 billion with $647 million attributable to the cooperative business
structure." (53)

A second study presents similar statistics from 1999 for 42 agricultural cooperatives in
Wisconsin. There, researchers found:

Agricultural marketing cooperatives employ 5,900 people, providing a
significant source of employment in Wisconsin's rural areas. Once the
multiplier effect is considered, these cooperative businesses generate an
additional 2,395 jobs. They produced $163 million in direct income,
which when cycled through the local economy amounted to $263 million
in income. (54)

A 2009 study surveyed about fifteen thousand cooperatives of different types operating in the
U.S., including farm supply and marketing cooperatives. (55) Extrapolating their sample to the total
number of such cooperatives in the U.S., they calculate that farm supply and marketing
cooperatives annually generate over $119 billion in revenue and directly employ nearly 150,000
people who earn over $6 billion in wages. (56)

Conclusion

America's agricultural sector feeds the nation's consumers at a fraction of the cost incurred by
citizens in other countries. Farmer cooperatives play an essential role in the production of food
and fiber and in the success and well-being of individual farmers and of rural communities. Any
action that would limit the effectiveness and efficiency of farmer cooperatives would harm
American agriculture and rural communities and would result in a less reliable food supply and
higher food prices.

The long-standing limited antitrust immunity provided by the Capper-Volstead Act and other
federal statutes evidences the consistent recognition by Congress and our courts of the need to
enable farmers to join together to collectively process and market their products and thereby to
give family farmers bargaining power in an economy increasingly dominated by relatively few,
large buyers. Congress has recognized the need for farmers to join together and has expressed
its intent to promote associations of producers through the Clayton Act, the Capper-Volstead
Act, the Agricultural Marketing Act, the Agricultural Marketing Agreement Act of 1937, and the
Agricultural Fair Practices Act of 1967.

The Supreme Court also has recognized the importance of placing farmers in the same position
as the purchasers of their products and their competitors:

We believe it reasonably clear from the very language of the Capper-Volstead Act, as it
was in Section 6 of the Clayton Act, that the general philosophy of both was simply that
individual farmers should be given, through agricultural cooperatives acting as entities,
the same unified competitive advantage - and responsibility - available to businessmen
acting through corporations as entities. (57)

Any action to eliminate or dilute the effectiveness of the Capper-Volstead Act would increase
risk to farmer cooperatives and their farmer-members. Such action also would cause a decrease
in the number of farmer cooperatives as farmers would be required to seek out other methods of
marketing their products in a highly competitive environment dominated by large buyers such as
Walmart, Costco, and others. The resulting damage to farmers and their ability to achieve
bargaining power would damage American agriculture and would harm consumers.

FOOTNOTES

1. USDA Economic Research Service, Table 7--Food expenditures by families and individuals as a share of
disposable personal income, 2007, available at:
http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/data/Table_97/2007table97.htm

8. 7 U.S.C. § 291. In 1926, following American Column & Lumber Co. v.U. S.,257 U.S. 377 (1921), Congress
enacted the Cooperative Marketing Act of 1926, 7 U.S.C. §§ 451-457, which further clarified that cooperatives may
exchange marketing and other economic information as part of their immunity.

30. See also Deller et al. (2009): "Many farmers purchase basic inputs such as seed, fertilizer, and farm chemicals
from a cooperative. In other words, farmers collectively establish a firm to negotiate better terms of purchase for
basic agricultural production inputs." Deller, Hoyt, Hueth, and Sundaram-Stukel, "Research on the Economic
Impact of Cooperatives," University of Wisconsin Center for Cooperatives, 2009, at pp. 16-17.

32. See Richard J. Sexton, "The Role of Cooperatives in Increasingly Concentrated Agricultural Markets," in Cooperatives: Their Importance in the Future Food and Agricultural System, Proceedings of a January 1990
Symposium sponsored by the National Council of Farmers Cooperatives and The Food and Agricultural Marketing
Consortium, 1997, pp. 31-47 at p. 38. ("[I]f cooperatives are providing better services and prices to farmers than are
competing for-profit firms, these firms must follow suit or lose patrons to the cooperative.")

40. This is not necessarily an easy task.Caves and Petersen (1980) explain the challenges facing cooperatives that,
for example, try to exercise monopoly power through output restrictions. In particular, cooperatives may not be able
to restrict output due to the fact that payments of net savings to its members is in direct proportion to the volume of
product contributed by the member. Caves and Petersen, "Cooperatives' Shares in Farm Industries: Organizational
and Policy Factors," Agribusiness, Vol. 2, No. 1, 1986, pp. 1-19 at p. 10.

55. Deller et al. use "farm supply and marketing cooperatives" to refer to "cooperatives [that] perform a wide variety
of functions in agricultural and food markets. Often these functionsare grouped into two broadcategories,
'marketing,' and 'supply.' ...[Some marketing cooperatives] provide processing and marketing services to farmers,
and also the necessary logistical support to aggregate farm supply. Other marketing cooperatives are much leaner
organizations, providing only marketing services to assist farmers get product to market, to pool risk, or to negotiate
sales as a group to a single buyer or a small number of buyers. Supply cooperatives provide service and inputs to
farmers to help them produce their goods." Deller, Hoyt, Hueth, and Sundaram-Stukel, "Research on the Economic
Impact of Cooperatives," University of Wisconsin Center for Cooperatives, 2009, at p. 16.

56. Deller, Hoyt, Hueth, and Sundaram-Stukel, "Research on the Economic Impact of Cooperatives," University of
Wisconsin Center for Cooperatives, 2009, at p. 16. The $119 billion revenue estimate appears to include total
revenue for farm supply and marketing cooperatives measured at the stage at which the product leaves the coop.
Thus, it seems to include revenue generated by selling farm inputs to farmers as well as revenue from selling
farmers' products to processors, etc.